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The Irish government has drawn up a last-ditch plan to avoid being forced to accept an EU bank bailout.

It wants to borrow money for the banks — supported by a guarantee from the European Central Bank.

That would mean technically avoiding a bailout and the politically damaging perception of a loss of sovereignty.

However, it would also risk alienating EU leaders who are convinced the government should take the bailout and get on with restoring the public finances.

And regardless of what sort of ‘bailout’ eventually emerges there will be strict budgetary conditions attached and the government will have to enforce a draconian budget next month.

The revelation came as a high-powered delegation from the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) arrived in Dublin yesterday to begin negotiations on a deal to restore confidence in the economy.

Mergers, nationalisation and the forced sales of banks will all be on the table when European officials sit down to debate a potential EU bailout for the sector.

The government’s counter-proposal would involve Ireland borrowing billions on the markets to support the ailing banks itself, possibly with the help of its European partners.

If Dublin could raise the money at a low rate of interest instead of accepting a bailout from the EU, Taoiseach Brian Cowen and his ministers could continue to run the country and not be forced to hand over control to the IMF.

It has been learned discussions around achieving this solution are continuing. It could only work with the EU providing some form of support or guarantee on Ireland’s ability to repay its debts.

Mr Cowen continued to insist last night that Ireland was not in talks on a bailout for the country.

“We haven’t started any negotiations. I want to get away from this word game,” he said.

A spokesman for Brian Lenihan said the Government would “wait and see where the discussions lead to”